Edison Tax Fight Could Short-circuit Counties' Budgets

Equipment Counted As Real Estate In Levy

A long, complicated legal battle between Commonwealth Edison Co. and several Illinois counties over hundreds of millions of dollars in tax revenue will soon reach a climax in Springfield.

The fight, over controversial real estate assessments that cost Edison nearly $120 million a year, comes at a time the company is under intense pressure to lower its spending to remain competitive.

In dispute are assessments on Edison's six nuclear power plants--or, specifically, on the machinery and equipment inside those plants. The counties tax that material as real estate, which Edison contends is illegal because no other industry in Illinois gets similar treatment.

If Edison wins the fight, not only will its taxes be reduced, but the company also stands to gain repayment of the taxes it's already paid.

And that frightens local officials, who say they've already spent the money and are depending on future revenue to support local schools. If they lose, the officials say, some school districts could face bankruptcy.

The case traces its roots to the 1970 state Constitution, which eliminated taxation on personal property as of 1979. Until then, counties had assessed 70 percent of a nuclear plant's worth as personal property. After the change, they no longer could do so. The state did, however, enact a replacement tax to make up for at least some of the lost revenue.

The case became extremely complicated when, in 1978, Edison agreed to allow Zion Township to assess the machinery and equipment in its nuclear plant there as real estate. Then, when the new law took effect a year later, it challenged that agreement--only to lose the legal challenge 10 years later.

When Edison lost, taxing districts reasoned the same rules should apply to all six nuclear reactors. And they assessed the plants accordingly. Edison contends the Zion case has no bearing on the others.

The dispute is now before the Illinois Property Tax Appeal Board in Springfield. And the agency, which overseas property tax assessments by county and township officials, is expected to make a ruling within weeks.

Though the decision pertains only to assessments by Ogle County, 88 miles west of Chicago, on Edison's Byron plant there, the precedent is expected to affect similar appeals involving plants in Grundy and LaSalle Counties and suburban Will County.

Edison, the Chicago-based subsidiary of Unicom Corp., in 1994 paid $118.2 million in real estate taxes on its six nuclear plants, said James J. Bruen, the utility's property tax code administrator. But it paid only $11.9 million on its eight coal-fired plants in Illinois, because those plants are assessed by a different method, he said.

Ogle County is not only the test case, but it probably represents the worse case scenario for local government.

Because of the Byron plant, Edison pays $40.1 million of the $72 million in property tax revenues collected there each year. Farms account for almost 90 percent of the taxable land in the predominantly rural county but only about 6 percent of the tax revenues.

"If Edison wins, the assessment would be cut to a third of what it is now," said James Harrison, supervisor of assessments for Ogle County. That would reduce the current assessment to about $300 million from $995 million.

Such a cut would reduce tax revenues to 10 local governments, including Ogle County and the public school system in Oregon, the county seat, by $25 million a year, said George Fischer, executive director of the Intergovernmental Agency Board created in 1990 to fight the tax case.

About 60 percent of the money goes to local schools, 13 percent to the county and the rest is split among other taxing districts. "I don't think there is any way they could absorb a cut like that," Fischer added.

If Edison wins, the local taxing districts there face having to pay back an estimated $100 million in disputed taxes they already levied and spent, Fischer said.

The crucial year in the dispute is 1991. That's when Ogle County raised its Byron assessment to $1.07 billion from $516 million the previous year.

Harrison said he raised the assessment based on an opinion by former Ogle state's attorney Dennis Schumacher that the plant's contents could be assessed as real estate.

Also at issue is the 1979 law that froze property classifications. The law, known as the Freeze Act, said anything classified as personal property before 1979 could not be reclassified as real estate. That law, which also implemented the replacement tax, was amended in 1982 to extend those rules to future projects.

"The Freeze Act wasn't supposed to result in a massive shift in tax burden," said Harold C. Hirshman, an attorney with the Chicago law firm representing Ogle and most of the other counties in their dispute.

"Edison's case is revolutionary if it is accepted. They want special treatment," Hirshman said. "The point is that the standard test (on utility assessments) that has existed for 80 years should be applied to Commonwealth Edison. Edison has been trying for years to say they are special and should have their own test."